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China’s Churning Out Steel And the Rest of the World Isn’t Happy

From Brazil to Canada and Mexico to Turkey, steelmakers are unhappy with China.

The producer of half the world’s steel is destabilizing the market with “massive and increasing overcapacity in an era of slowing growth,” according to a joint statement by industry associations from around the world this week. All regions are suffering from a “dramatic increase in unfair imports,” it said. China exported more of the alloy in April than any other country produced, according to the World Steel Association.

Prices have slumped worldwide as China ships excess output overseas amid slowing domestic demand. While the government plans to reform the industry by merging the dominant state-owned suppliers, overseas steelmakers say it’s maintaining unfair state support that’s prolonging the glut.

“Whenever there is trade friction you will hear these complaints,” said Helen Lau of Argonaut Securities (Asia) Ltd. in Hong Kong. “The bottom line though is that China’s steel industry is in decline. China is exporting more because domestic demand is not very strong, but at the same time there is export demand.”

Officials from the China Iron & Steel Association, which represents the country’s industry, were unavailable to comment on the letter, said Zhu Guangsheng, the group’s media liaison. Nobody answered calls to the press office of the Ministry of Industry and Information Technology and the National Development and Reform Commission in Beijing, which set steel policy.
Import Action

The statement was sent by industry groups representing steelmakers in the U.S., Canada, Mexico, Latin America and Europe. They called on governments to address the global overcapacity and take into account China’s steel policy when considering whether it should be recognized as a market economy by the World Trade Organization.

Some countries are already acting to reduce imports from China. The European Union this month renewed tariffs on steel wires used in construction for another five years while Mexico imposed levies on some exporters. U.S. steelmakers including U.S. Steel Corp. and Nucor Corp. filed a complaint alleging imports of corrosion-resistant metal from China and four other countries are being sold at unfairly low prices.

China exported a record 10.3 million tons in January and shipments in the first five months of the year were 28 percent higher than the same period in 2014. It made a record 822.7 million tons of the alloy last year.
Difficulty Competing

“Our producers are having difficulty competing,” Sahap Ataman, director of economic affairs at the Turkish Steel Producers Association, one of the statement’s signatories, said Wednesday in a phone interview. “There are many, many, many different types of subsidies in China at the central and local government level. And as their economy slows they are following an aggressive pricing policy.”

Production in the country slowed 1.6 percent in the first five months of the year. Output is falling as both private and state-owned mills face lower prices, stricter environmental regulation and tougher access to bank loans, according to Argonaut’s Lau.

China’s government plans to consolidate the country’s steelmakers to create three to five major producers. The 10 biggest suppliers should be in control of at least 60 percent of output by 2025, according to the latest policy update in March. This will be more effective than previous attempts at encouraging mergers, analysts at Sanford C. Bernstein wrote on Wednesday.

Global demand will grow 1.4 percent in 2016 from this year’s 1.54 billion tons, Edwin Basson, director general of the WSA said last month. Consumption next year will contract 0.5 percent in China while expanding in the Middle East, Europe and Africa, according to the group.

Hot-rolled coil, used in construction and piping as well as in household items such as refrigerators, has fallen 20 percent this year on the Shanghai Futures Exchange. Prices in the U.S. are 23 percent lower, according to data from The Steel Index Ltd.
Source: Bloomberg